Vol. 4 / No. 4 / Spring 2008  

Philanthropy in China

by Judith H. Dobrzynski

This overview of the development of philanthropy in China—a relatively new phenomenon—is part of Carnegie Corporation’s occasional series of articles examining issues relating to philanthropy in the U.S. and internationally.

In a survey of the history of modern China, the names Deng Xiaoping and Li Ka-shing may not immediately seem linked. But think again. Deng, China’s de facto leader for over a decade, unleashed the Chinese economy with a series of reforms begun in 1978 that opened it to global markets and turned a drab, centrally controlled, impoverished country into a dynamic, economic powerhouse. And Li, who benefited from those reforms to become Asia’s richest self-made man, may well do something similar with Chinese philanthropy.

In 2006, Li, who is chairman of Hutchison Whampoa Ltd. and Cheung Kong Holdings in Hong Kong, announced that he would donate a third of his fortune, now estimated as $32 billion by Forbes magazine, to his philanthropic foundations, which support Chinese universities and various other projects around the world. He likened his foundation to his “third son.” Then, last fall, he told the Wall Street Journal that he wanted to set an example of public giving, mimicking the American model, in hopes of prompting other Chinese entrepreneurs to follow suit.

Talk show host Yang Lan (above) Business leader Li Ka-shing (left)  China certainly has the necessary conditions. Now the world’s fourth-largest economy, it boasts a GDP approaching $2.7 trillion, about one-fifth the size of the U.S. economy. It’s growing at the red-hot rate of around 10 percent a year and creating unprecedented personal wealth. China, including Hong Kong (which is administered separately), has more than 100 billionaires, according to Forbes, which pegs the total net worth of the 400 richest people in China and the 40 richest in Hong Kong at $467 billion. In 2006, the number of Chinese worth more than $1 million grew by nearly 8 percent to 345,000 people—more than the totals of India, Russia and Brazil combined—according to the 11th annual wealth report published last June by Merrill Lynch and Capgemini, a global consulting firm. China, the report says, is also home to about one-third of the Asia-Pacific region’s “super-rich”—those with $30 million or more in assets.

Can philanthropy—which John Peralta, managing director of Global Philanthropic, a Hong Kong consulting firm, calls “the ultimate expression of wealth”—be far behind?

Various news organizations, including the Journal, Reuters, and the Hurun Report, have reported several mega-gifts and pledges: a talk-show host named Yang Lan placed some $72 million into a foundation devoted to education, environmental causes and cultural exchanges; a hotelier-and-trading company chief named Yu Pengnian contributed an estimated $270 million to health care—including a pledge to provide free operations for 100,000 to 150,000 cataract sufferers in depressed areas over a five-year period—and higher education; a dairy mogul named Niu Gensheng put stock worth $600 million into a foundation that will focus on agriculture, education and health and so far has given away $85 million of it; a property developer named Zhu Mengyi has given $140 million; a real-estate developer named Huang Rulun has several times been named the most generous individual in mainland China, giving more than $350 million for health care and fighting poverty. And last December, the Swiss banking giant UBS said that donations from the top 50 publicly disclosed philanthropists in China had risen eightfold in three years to $11 billion in 2007.

But by tradition, rich Chinese keep their wealth within the family and make their donations privately, exhibiting benevolence without self-aggrandizement in the Confucian tradition. The money is meted out by the oldest generation and generally goes to sating immediate and, frequently, local needs—paying for hospitals, relief efforts, basic education and the like—and rarely to more strategic, long-range goals. It is charity as opposed to philanthropy, in American parlance. It is a pittance in the context of both overall wealth in China and government spending on social programs. And since the Communist revolution—until Deng came to power—philanthropy has been unnecessary in the Chinese ken, because the state took care of everything.

So when Li told the Wall Street Journal that “In the U.S., philanthropic support from entrepreneurs is tightly integrated into the fabric of society, whether it’s health care, medical research or education. Now, slowly, China will know this,” he took up a heroic challenge. To make that happen, both the entrepreneurs and the fabric of society will have to change.
Students of philanthropy around the world have found that a country’s legal environment is critical to the health of the philanthropic sector—and in China that milieu is decidedly mixed. As in Russia, Chinese authorities have always distrusted private philanthropy, viewing philanthropists as a threat to their power and as potential agents of conflict and instability. “In all important government, economic, and cultural institutions in China,” the U.S. State Department advises, “party committees work to see that party and state policy guidance is followed and that non-party members do not create autonomous organizations that could challenge party rule.”

Lately, as private enterprise has grown without causing too much disorder, the Chinese government has slowly begun to loosen its rein, granting approval to an increasing number of charities and nongovernmental organizations, although many have government roots and continuing connections. But at the same time, some of the more independent-minded or controversial NGOs have actually been shut down.

Meanwhile, authorities have signaled that the government cannot pay for all the social services needed by China’s 1.3 billion people. Since 2001, the Ministry of Civil Affairs has supervised the publication of the China Philanthropy Times, a newspaper that promotes the concept of both individual and corporate philanthropy and bestows philanthropy awards. Recently, at the opening of the 17th Central Committee of the Communist Party National Congress, General Secretary Hu Jintao not only encouraged “private sectors to operate educational undertakings” but also said the country’s social security system should provide for basic allowances to be “supplemented by charity and commercial insurance.” In a nod to civil-society groups willing to fill the gaps, Hu also said the government would accelerate the separation of “governmental and nongovernmental functions.”

The government has also discussed what many say is a necessary next step to encourage philanthropy: passage of a law that would require charities to disclose and provide an audited accounting of how they spend their donations. But last year’s measure was shelved and nothing has yet happened to revive it.

Another issue is China’s tax regime, which provides little incentive to give. Neither mainland China nor Hong Kong has an estate tax, so families may preserve their wealth from generation to generation. Neither has a capital gains tax for individuals. Instead of an income tax, the mainland government taxes the salaries of top earners, obligating about 30 percent of the working population to pay (vs. about 50 percent in years past); it allows taxpayers to deduct 2 percent of their salaries for charity and there is talk of raising that to 12 percent, according to Reuters. In Hong Kong, individuals can deduct up to 25 percent of their salaries for charitable contributions. But few people pay income taxes anyway, and as in many fast-developing countries there has been little enforcement.

What has prompted the Chinese to give is worldliness. Hong Kong is the base of most of China’s big philanthropists, including Li. “The wealth here is older and more sophisticated,” Peralta says, thanks to Hong Kong’s long stretch as a British Crown Colony. Many wealthy Hong Kong Chinese—not just Li—have been giving for years. And they haven’t been shy about taking credit: Their names adorn buildings and colleges at several universities in Hong Kong, for example.

Peralta says that philanthropy is “catching on” in mainland China, but that the amounts involved remain tiny. “The gifts are more high-profile there because it’s new, but until recently they had to be careful not to attract investigations about corruption,” he says. “Philanthropy had an association with corruption in the past.” Now, experts say, being successful is starting to be defined in a way that includes philanthropy as well as the right clothes, car, and social activities.

That’s not to say that the dynamic of giving in China, Hong Kong included, is the same as in the U.S. Generally, for example, the receiver announces the gift, because the giver must seem altruistic and humble.

Nor will “competitive philanthropy” take root in China the way it has in America—with rich individuals vying to top one another with gifts. In China, a wealthy family would never vastly overstep its position with an outsized donation: Stanley Ho, worth an estimated $9 billion, would not out-give Li Ka-shing.

Another distinction is that while philanthropy in America is frequently aimed at fostering social change, the Chinese prize social harmony and stability, and the bulk of their gifts go to safe, non-controversial areas like education, poverty alleviation and basic health care. Global warming would be out, as would AIDS and women’s causes.

Here, too, Li seems to be leading Chinese philanthropy. His gifts, an estimated $1 billion to date, have created Shantou University near his hometown in rural China, established health research centers, and set up medical clinics for China’s poor and disabled, and for cancer victims, according to the Chronicle of Philanthropy. He has also given money to an oncology research program at the University of Cambridge in the United Kingdom, supported controversial health measures like the use of palliative pain relief medicines, and donated to charities in Australia, Europe, North America, and Singapore.

Seeing how philanthropy develops in China won’t be easy, though. Charitable foundations created by Chinese philanthropists are completely opaque, with few reporting or auditing requirements and no requirements to give money away. “They are black boxes,” says Peralta. “You have no idea about the sources of the money or how it’s doled out. It becomes a multipurpose vehicle—they commingle business, charity, and personal aims.” Indeed, in January, the National Basketball Association formed a Chinese entity with the Li Ka-shing Foundation as an investment partner alongside the Walt Disney Company, the Bank of China, and two other business groups.

So the big-givers lists and the numbers collected by publications and consultants may be a tad less revealing than perceived. Certainly, there are many wealthy Chinese who have yet to join the new philanthropic class. Still, as the consumer society grows, when a history of this period is written Li may not only be linked with Deng Xiaoping but also compared to Andrew Carnegie. 

Read about how charitable giving by individuals is emerging in China in the wake of the devastating May 13, 2008 earthquake.

Judith H. Dobrzynski, a former a senior editor at The New York Times, Business Week, and CNBC, is a writer based in New York.

Vol. 4 / No. 4 / Spring 2008